SAIL may buy stake in new port at Sagar Island

SAIL chairman C.S. Verma. SAIL imports about 10 million tonnes (mt) of coking coal a year to fire its steel plants and the commodity is shipped mostly through ports located in Visakhapatnam, Paradip and Haldia ports. Photo: Ramesh Pathania/Mint

Bangalore: Steel Authority of India Ltd (SAIL), India’s biggest state-run steel maker, may buy an equity stake in a new port planned by the Union government at Sagar Island in West Bengal, as the state-owned firm looks to save on logistics costs, two company executives said.

SAIL currently imports about 10 million tonnes (mt) of coking coal a year to fire its steel plants and the commodity is shipped mostly through ports located in Visakhapatnam, Paradip and Haldia ports.

“SAIL is looking at various options, including taking a stake in a berth, owning an exclusive berth or a port. Buying a stake in the planned port at Sagar Island could be one of the options. The quantum of stake to he held will depend on various factors,” one of the two SAIL executives said. He requested anonymity because he is not authorized to speak to the media.

Owning a berth or port will help SAIL receive ships on a priority basis, speed up unloading and reduce costs substantially, said a Mumbai-based port consultant who declined to be named.

Importers save on port costs, including demurrages, a term used when the charterer (the entity hiring the ship) pays the shipowner for extra use of the vessel.

SAIL mainly uses the Haldia port, being closest to its plants, to import coking coal, but insufficient depth at Haldia poses a logistic challenge to the firm.

Out of 10 mt of coking coal imported by SAIL every year to feed its steel plants, the steel-maker ideally wants to ship about 6 mt directly to Haldia. But the firm can ship only 3-4 mt of coking coal to Haldia because of insufficient depth at the port to bring the full cargo quantity on ships.

As a result of the depth restrictions at Haldia, SAIL imports coking coal on ships first to Vizag port, from where about half the quantity is unloaded and taken to the steel mills by rail. Moving coking coal from Vizag to steel mills by rail entails higher freight costs, compared with transporting it from Haldia port.

As the load is reduced at Vizag and the ship becomes lighter, the balance cargo is shipped from Vizag to Haldia at extra cost.

“Thus, SAIL has to pay more on freight to ship coking coal to Haldia because of insufficient depth at the port,” said a Mumbai-based ship broker. He declined to be named.

A port at Sagar Island will be beneficial to SAIL, offering inland logistics advantages as it would be located close to its steel plants. “As the depth at Sagar Island port will be deeper than at Haldia, we will be able to bring more cargo to the port per ship. This will reduce our inland logistics costs,” the official mentioned earlier said.

A spokesman for SAIL could not be reached immediately for comment.

The Union shipping ministry is keen to induct state-owned firms with cargo interest as equity partners in the two proposed ports—one at Ramayapatnam in Andhra Pradesh and the other at Sagar Island in West Bengal.

“If public sector undertakings join as stakeholders, it will bring cargo comfort to the new ports,” a shipping ministry spokesman said. The ministry has also asked the nearest Union government-controlled port, Visakhapatnam for Ramayapatnam, and Kolkata for Sagar Island, to buy stakes in the new ports, he said.

The respective state governments—Andhra Pradesh and West Bengal—will also hold equity in the new ports.

As the new ports will be set up as companies, they will be free to set rates for services. In comparison, rates at the 12 ports currently owned by the Union government are regulated by the Tariff Authority for Major Ports (TAMP) because they are run as trusts.

The first phase of the new port at Sagar Island, with a cargo-loading capacity of 54 mt, is estimated to cost Rs.7,851 crore, according to a feasibility study conducted by consultancy Rites Ltd.

A feasibility study for the new port in Ramayapatnam will be conducted soon, the ministry spokesman said.

The ministry will approach the cabinet in the next few days seeking “in-principle” approval to set up the new ports. The finer details of the equity structure will be decided later, he said.